Just thinking how the predictive element of economic forecasts always seems to happen after a market event? I know this is probably a silly idea since all our lives depend on a stable fiscal system. What if the 'economy' was just so much astrology and oil?

To punish the oppressors of humanity is clemency; to forgive them is cruelty. - Maximillien Robiespierre

Ads by Google

alienpresence wrote:Just thinking how the predictive element of economic forecasts always seems to happen after a market event? I know this is probably a silly idea since all our lives depend on a stable fiscal system. What if the 'economy' was just so much astrology and oil?

It does resemble more pseudo-science than science, at least within some areas. The stock market, for example, seems to be unpredictable. Its behavior may be best described by chaos theory.

IIRC, standard economic theory is based on some pretty serious bullshit. I heard from somewhere that the original economic equations that pretty much the entire modern theory is based on were just copied from physics with the variables renamed. Not positive that that's right, but it wouldnt surprise me at all.

The only things that are infinite are the universe and human stupidity, and I'm not sure about the universe.Einstein

In a society that has abolished all adventures, the only adventure left is to abolish society.The Black Iron Prison

Some but not all. A lot of economics is hard science, in as far as any thing that describes a cultural system can be. Other bits are really just, well wild guesswork, the rest (a lot) in between : competing models describing same data. Much like most sciences really!

Economics is still in it's infancy, really a second childhood. They are only recently beginning to understand the importance evolution plays in how and why economic systems work as they do, and the related and seemingly obvious-that humans are not rational market-clearing agents, who'da thunk it? Plus, economists resist proper accounting for externalities and discounting, which again is related to and depends on the previous.

Ads by Google

Economics is not a natural science in the same way that physics, chemistry and biology etc are. It is mainly an "historical" science, like ...um...history. There is little opportunity to confirm theories by experiment, for example.

Nevertheless, models can be made, and tested against historical data. So an economic model can be falsified in much the same way that Haldane's "fossil rabbits in the Pre-Cambrian" could falsify evolutionary theory.

One can predict that , over the long term, if marginal costs exceeds marginal revenues, then a firm will go broke. So, the social sciences, are really sciences in the more general meaning of the term, although they do tend to get contaminated from time to time with post-modernist and other types of woo.

Economic models try to simulate the real universe of commerce, and as with most models, there are simplifying assumptions [which if they are incorrect], can lead to poor predictions. But this is really true of all scientific models, such as weather/climate models. It's not that the basic methodology is wrong, but building accurate models that retain relevance while still being simple enough to manipulate is an art. What do you include, and what do you exclude?

Natural science models tend to predict more accurately [in general] because they deal with relatively simple inputs. But human behavior is not a simple input, and so the social sciences suffer from this.

For example, suppose you run an experiment on the death penalty. Half of a society has the death penalty, and another does not. [You control for demographic variations of all sorts].

For one thing, the community would not allow such experiments. Secondly, how can you be sure of the results? The calculus will be complex indeed. Even if it is true [for the sake of argument] that the death penalty is a deterrent to say murder. People might object to the death penalty on ethical grounds, even if it IS a deterrent to murder! Or people could believe that the death penalty actually increases the murder rate, because if the government murders, the why does the citizen not have a right to do the same thing? The thing could become a self-forfilling prophesy: the death penalty hardens a disrespect for life in the community, therefore more people will murder? There are a hundred ways people can react to such an experiment, and teasing any truth out of the data could be very hard indeed.

Working out the average behavior of gas molecules in a container is child's play in comparison. Few people would get overly excited about the behavior of gas molecules, but emotions can run high in social issues and matters of law and justice-or, for that matter, in economics.

You have to separate out a few different "kinds" of economics - there is the practical application of economics, and then there are two facets of economic theory; the first being the old school of thought that bases everything on the "rational agent", and the latter being the modern school of thought that realises that "rational agents" don't exist.

The applied economics obviously isn't science, as no applied field is science, and the old school economics isn't science as it's based around confirming presuppositions rather than discovering facts about the world. However, the latest stuff coming out on economics (in the field of behavioral economics) is actually pretty exciting and meets all the criteria of science.

The simple fact of the matter is that economic theory has been invaluable in developing some of the most important theories in psychology over the last few decades; for example using the concept of utility discounting in self control studies. There's also the fact that, as any good science should, it removes any concepts that have been falsified by experimental data - such as maximisation theories, the idea of the rational agent whose choices remain constant over time, etc.

So whilst it has a pseudosciency history, and a number of people fail to distinguish the scientific theory from the applied field, a lot of the work coming out at the moment follows all the rules of science and is making some important contributions to understanding the world. And it is very exciting, not boring at all!

alienpresence wrote:Just thinking how the predictive element of economic forecasts always seems to happen after a market event? I know this is probably a silly idea since all our lives depend on a stable fiscal system. What if the 'economy' was just so much astrology and oil?

Mr.Samsa wrote:You have to separate out a few different "kinds" of economics - there is the practical application of economics, and then there are two facets of economic theory; the first being the old school of thought that bases everything on the "rational agent", and the latter being the modern school of thought that realises that "rational agents" don't exist.

The applied economics obviously isn't science, as no applied field is science, and the old school economics isn't science as it's based around confirming presuppositions rather than discovering facts about the world. However, the latest stuff coming out on economics (in the field of behavioral economics) is actually pretty exciting and meets all the criteria of science.

The simple fact of the matter is that economic theory has been invaluable in developing some of the most important theories in psychology over the last few decades; for example using the concept of utility discounting in self control studies. There's also the fact that, as any good science should, it removes any concepts that have been falsified by experimental data - such as maximisation theories, the idea of the rational agent whose choices remain constant over time, etc.

So whilst it has a pseudosciency history, and a number of people fail to distinguish the scientific theory from the applied field, a lot of the work coming out at the moment follows all the rules of science and is making some important contributions to understanding the world. And it is very exciting, not boring at all!

Good points, Mr.S., my post fairly inline with yours, though you say things with an eloquence and a sound of authority I'll never manage.

You can't emphasize enough how fascinating some of the experiments economists are doing these days, and often rather amusing. One of my favorites that has been replicated with Macaque Monkeys is the fair split test. Take two people, offer one $100 dollars on the condition that he offer to split it with the other, and that the other accept the split. A rational agent would accept a $1 split as he gains for zero effort, a human, with strong sense of fairness, won't accept offers anywhere near that low (can't remember the actual results). These types of tests are beginning to discern the deep psychologies of our drives and motivations, the basis for what moves individual economic agents and global markets.

crank wrote: Good points, Mr.S., my post fairly inline with yours, though you say things with an eloquence and a sound of authority I'll never manage.

It's not that hard to do; all you have to do is talk shit, but then also believe the shit you're talking!

crank wrote:You can't emphasize enough how fascinating some of the experiments economists are doing these days, and often rather amusing. One of my favorites that has been replicated with Macaque Monkeys is the fair split test. Take two people, offer one $100 dollars on the condition that he offer to split it with the other, and that the other accept the split. A rational agent would accept a $1 split as he gains for zero effort, a human, with strong sense of fairness, won't accept offers anywhere near that low (can't remember the actual results). These types of tests are beginning to discern the deep psychologies of our drives and motivations, the basis for what moves individual economic agents and global markets.

Ah, I remember hearing about an experiment recently where a human plays against a computer, and basically they just decide on how much the computer (who they think is another person) gets. In the end, they found that humans would tend to short change their opponent, even at their own expense (so instead of giving themselves and the other person 4 points, they'd choose to take 3 points and only give 1 point to their opponent - the computer). They were really odd results, but I'll have to find the paper for the details.

alienpresence wrote:Just thinking how the predictive element of economic forecasts always seems to happen after a market event? I know this is probably a silly idea since all our lives depend on a stable fiscal system. What if the 'economy' was just so much astrology and oil?

It does resemble more pseudo-science than science, at least within some areas. The stock market, for example, seems to be unpredictable. Its behavior may be best described by chaos theory.

Have you read Freakonomics?

I'm just reading this now and it is having an effect on the way I view economics in general. I would agree with others that it is not pseudoscience, but differs from other forms of science.

"He that would make his own liberty secure, must guard even his enemy from oppression; for if he violates this duty, he establishes a precedent that will reach to himself."-Thomas Paine

alienpresence wrote:Just thinking how the predictive element of economic forecasts always seems to happen after a market event? I know this is probably a silly idea since all our lives depend on a stable fiscal system. What if the 'economy' was just so much astrology and oil?

Suicide. And plenty of it!

Yes, I was thinking along those lines. Disrupt the flow of oil and all you'd have is astrology (and a few nukes left over from the oil-period). I guess anything can be called a science but I'm still not convinced about economics. There's too much money involved for it not to be corrupted by woo all the time. I like all these curves and graphs and numbers, love the exponentials - their all over the shop, but I'm still not sure. Far too many rely on Eliot Waves and that kind of thing.

Last edited by alienpresence on Mar 01, 2010 7:59 am, edited 1 time in total.

To punish the oppressors of humanity is clemency; to forgive them is cruelty. - Maximillien Robiespierre

Liked his one about The French Revolution. Maybe he was wrong on some things? but hey no man can be right all the time. He was a product of his time and was listened to. A wise warning to not place too much value in the words of great men? Use your own critical facilities and your own intuition - think outside the box of your established culture or you may get caught in a 'dismal science' also?

To punish the oppressors of humanity is clemency; to forgive them is cruelty. - Maximillien Robiespierre

My view is that economics is NOT a science but a discipline like history that can analyse trends and observe generalities but has no predictive power at all.

The economic community would like to think otherwise.

Humans are not gas molecules and are asymmetrical and irrational in their decision making.

Ah, I remember hearing about an experiment recently where a human plays against a computer, and basically they just decide on how much the computer (who they think is another person) gets. In the end, they found that humans would tend to short change their opponent, even at their own expense (so instead of giving themselves and the other person 4 points, they'd choose to take 3 points and only give 1 point to their opponent - the computer). They were really odd results, but I'll have to find the paper for the details

this is the asymmetry I speak of and it's not restricted to humans...capucin monkey's exhibit it clearly as well....once they perceive "unfair" - revenge and violence become the norm out of all proportion to the trigger event.Primates will work against their short term self interest to exact revenge on unfair practice once it goes outside of their personal tolerance....

we will all tolerate and understand a certain degree of unfairness in society and outcomes.....once it gets beyond those boundaries.....violence and revolution ensues....

Humans aren't irrational, they just aren't rational in the economic sense (maximising returns). But they are 'rational' in the sense that they make consistent choices given specific input variables. Human behavior can be described quite easily, problems only arise when you remove the subjects from the lab and put them into a world full of variables and confounds (whilst this naturally decreases our predictive power, we can still be highly successful in predicting and controlling behavior - otherwise behavioral therapies would be useless).

In a lab setting though, where I can control the variables, humans run like clock work.

Just because the predictions of economics are not as precise as those commonly found in the natural sciences, does not make econs totally useless, or equivalent to a pseudoscience. There are, no doubt some bad economists who bring their ideologies [of the left and right] into their work, but I don't think that invalidates econs as a science in the broader meaning of the word. Nor does it make it a pseudoscience, although I admit that many economists to tend to practice econs as a pseudoscience. To me, Macdoc, your argument is a little like saying that because Micheal Behe practices pseudo-science [at least when he his touting for ID], that evolutionary theory is a pseudo-science.

No, I don;t think that the predicting of the behavior of gas molecules and masses of people making economic decisions are the same thing, but there are some similarities. I certainly don't think that many people act rationally when on the stock market, they tend to follow the herd. Some people make rational decisions and others don't, but the overall effect of heating a gas and heating an economy [or cooling] it, can have some similarities.